A Productivity Commission proposal would raise the pension age to 70, but the government has rejected that idea. Photo: Louis Douvis

The Productivity Commission, which the Abbott government has commissioned to conduct reviews of the childcare and industrial relations systems, recommended in a report released on Friday that the government consider raising the age at which people can access the pension to 70 by 2035. The pension age is already due to climb to 67 by 2023.

But a spokeswoman for Treasurer Joe Hockey said the government had no plans to increase the pension age.

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''We have no plans to change the age,'' the spokeswoman said, adding that the commission was ''an adviser to government, it's not the government'.'

Unions have already rejected the call with ACTU president Ged Kearney saying while life expectancy may have risen, the ability of Australians to continue to work in physically demanding jobs had not risen with it.

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''How can construction workers be expected to haul concrete around a work site or a childcare worker keep up with a room full of kids until they're 70?'' Ms Kearney said.

''If the Government wants to reduce budget pressures as the population ages, it should strengthen the superannuation system rather than raise the pension age.

''A strong superannuation system lets ordinary workers retire with security and quality of life and takes pressure off the pension system.''

Ms Kearney said the government should reduce superannuation tax concessions that disproportionately benefit high-income earners and move as quickly as possible to lift the compulsory superannuation contribution to 12 per cent.

The Abbott government has deferred the increase of the compulsory superannuation contribution to 12 per cent for two years. It will now take effect in 2021. The Coalition has also promised to axe a superannuation tax break worth up to $500 a year to 3.6 million low income earners.

National Seniors chief executive Michael O'Neill said raising the pension age without first tackling the issue of mature age employment would merely shift older Australians ''from one form of welfare to another''.

''It is naive to suggest that simply raising the pension age will boost productivity,'' Mr O'Neill said.

''Currently, older Australians want to work but no one will hire them. Lose your job at 50 and the odds are stacked against you getting another one.''

The Combined Pensioners and Superannuants Association also canned the idea, with senior policy adviser Charmaine Crowe saying it ''shows what happens when the bean counters are let loose on social policy''.

''This policy might satisfy the bottom line, but it would have a devastating impact on low-income older people,'' Ms Crowe said.

''Lifting the pension age to 70 will force the least well-off to work till 70, while the better-off can enjoy their retirement at any age, thanks, in part, to the raft of tax breaks in superannuation from which they overwhelmingly benefit.

''This policy will see grandmothers and grandfathers joining the dole queue.''

Greens Senator Rachel Siewert said raising the retirement age was a ''simplistic'' response to the challenges of the ageing population.

She said such a change would have a disproportionate impact on some people, such as those who had performed manual work and women, who typically had little savings.

''Those people will live in poverty – that is not fair to many hardworking Australians,'' she said.

Asked about a Productivity Commission proposal for an ''equity release scheme'' for older Australians who own their own homes, to help pay for health and aged-care services, Senator Siewert said it was an idea worth pursuing.

She said government had a role to play in allowing older Australians to use their equity in their home to fund their retirement without placing themselves or their partner in hardship.

Senator Siewert said the Productivity Commission had previously made a number of sensible recommendations on how this could be done but neither of the major parties had seemed interested in taking them up.

The scheme proposed by the Productivity Commission would mean those who own their homes contribute half of the annual real increased house value to the government, which would then help cut government spending by about 30 per cent.

''An equity release scheme of this kind would still leave older households with an appreciating asset base and provide a means to increase the quality of services provided over the longer term,'' the paper, titled An Ageing Australia: Preparing for the Future said.

The paper projects that Australia's population will grow from about 23 million in 2012 to about 38 million by 2060, with a substantial increase in the number of retirees as people live longer.

That will mean lower overall participation in the workforce, and more pressures on governments to pay for higher health, aged care and pension costs.

''The best time to develop policies that address the inescapable implications of demographic change is while the transition is in its infancy. It is a good time to start a debate, and to float creative policy options.''

The report forecast Australia would have 4 million more people aged 75 years or older by 2060, with 25 centenarians for every 100 newborns, compared with one centenarian for every newborn in 2012.

It said Sydney and Melbourne would each have about 7 million residents.